Hedge Ratio

1. A ratio of the value of the proportion of a position that is hedged to the value of the entire position. A hedge ratio shows how exposed an investment is to risk. For example, if a hedge ratio is .65, then 65% of the investment is protected from risk, while 35% remains exposed.

hedge ratio

The number of options required to offset the change in value due to a price change in 100 shares of common stock. For example, if two options are needed to offset value changes for 100 shares of stock, the hedge ratio is 2.

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